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Smithfield's has a line of credit with a local bank of $75,000. The loan agreement calls for interest of 6 percent with a compensating balance

Smithfield's has a line of credit with a local bank of $75,000. The loan agreement calls for interest of 6 percent with a compensating balance requirement of 3 percent that is based on the total amount borrowed. What is the effective interest rate if the firm needs $58,000 for 1 year to finance a fixed asset purchase?

Multiple Choice:

A. 8.55%

B. 7.13%

C. 6.19%

D. 6.34%

E. 7.38%

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